exv4w32



 







EXHIBIT 4.32




Execution Copy




INSURANCE AGREEMENT




     INSURANCE AGREEMENT, dated November 30, 2005, among The Crystal Water Company of Danielson
(“Crystal Water”), Connecticut Water Service Inc. (the “Holding Company”) and Financial Guaranty
Insurance Company, a New York stock insurance company (“FGIC”).



     WHEREAS, pursuant to an Indenture of Trust, dated as of October 1, 2005 (the “Indenture”),
between Connecticut Development Authority (the “Issuer”) and U.S. Bank National Association as
trustee (the “Trustee”), the Issuer has issued $5,000,000 in aggregate principal amount of its
Water Facilities Revenue Bonds (The Crystal Water Company of Danielson Project – 2005A Series) (the
“Bonds”); and



     WHEREAS, the Crystal Water and the Issuer have entered into a Loan Agreement, dated as of
October 1, 2005 (the “Loan Agreement”), pursuant to which Crystal Water is obligated to make loan
payments sufficient to pay, among other items, debt service on the Bonds; and



     WHEREAS, the Holding Company and the Issuer have entered into a Guaranty, dated as of October
1, 2005 (the “Guaranty Agreement”), pursuant to which the Holding Company is obligated to make loan
payments sufficient to pay, among other items, debt service on the Bonds to the extent the Crystal
Water fails to make such payments; and



     WHEREAS, FGIC has issued its Financial Guaranty Insurance Policy (the “Policy”), which insures
the scheduled payments of principal of and interest on the Bonds and payment of principal of and
interest on the Bonds upon a Determination of Taxability (as defined in the Indenture) as specified
in the Policy; and



     WHEREAS, Crystal Water and the Holding Company understand that FGIC expressly requires the
delivery of this Agreement as part of the consideration for the delivery by FGIC of the Policy;



     NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of
the execution and delivery of the Policy, Crystal Water, the Holding Company and FGIC agree as
follows:



ARTICLE I

DEFINITIONS




     SECTION 1.01. Definitions. Except as otherwise expressly provided herein or unless the
context otherwise requires, the terms that are capitalized herein shall have the meanings specified
in the Indenture unless otherwise defined in Annex A hereto.



-1-









 





EXHIBIT 4.32




ARTICLE II

PREMIUM AND REIMBURSEMENT OBLIGATIONS

OF THE COMPANY




     SECTION 2.01. Premium. In consideration of FGIC’s agreeing to issue the Policy hereunder,
Crystal Water hereby agrees to pay FGIC the Premium at the times and in the amounts provided in the
Commitment. To the extent that any such payment of the Premium is not paid when due, interest
shall accrue on such unpaid amount at a rate equal to the Effective Interest Rate.



     SECTION 2.02. Reimbursement Obligation. Crystal Water and the Holding Company agree to
reimburse Financial Guaranty, from any available funds, immediately and unconditionally upon
demand, for any Policy Payment. To the extent that any such payment due hereunder is not paid when
due, interest shall accrue on such unpaid amounts at a rate equal to the Effective Interest Rate.
Following any such Policy Payment, the payment by Crystal Water and the Holding Company of the
amount of principal of and/or interest on the obligations in respect of which such Policy Payment
shall have been made shall satisfy and discharge, to the extent thereof, the corresponding
obligations of Crystal Water and the Holding Company under this Section 2.02.



     SECTION 2.03. Unconditional Obligation. The obligations of Crystal Water and the Holding
Company hereunder are absolute and unconditional and will be paid or performed strictly in
accordance with this Agreement, irrespective of:



     (a) any lack of validity or enforceability of, or any amendment or other modification of, or
waiver with respect to the Bonds, the Indenture, the Loan Agreement or any other bond financing
document;



     (b) any exchange, release or nonperfection of any security interest in property securing the
Bonds, the Indenture, the Loan Agreement or this Agreement or any obligations hereunder;



     (c) any circumstances that might otherwise constitute a defense available to, or discharge of,
Crystal Water or the Holding Company with respect to the Bonds, the Indenture, this Agreement or
the Loan Agreement; or



     (d) whether or not the obligations under the Bonds, the Indenture, this Agreement or the Loan
Agreement are contingent or matured, disputed or undisputed, liquidated or unliquidated.



ARTICLE III

REPRESENTATIONS AND WARRANTIES




     SECTION 3.01. Representations and Warranties of Crystal Water and the Holding Company.



     (a) Crystal Water makes the following representations as the basis for its undertakings herein
contained:



-2-









 





EXHIBIT 4.32




     (1) Crystal Water is a Connecticut corporation organized and existing under the laws of the
State of Connecticut, and has the power to enter into and has duly authorized, by proper action,
the execution and delivery of this Agreement, and the Loan Agreement (collectively, the “Company
Documents”).



     (2) Neither the execution and delivery of any Company Document, the consummation of the
transactions contemplated hereby and thereby, nor the fulfillment of or compliance with the terms
and conditions hereof and thereof, conflicts with or results in a breach of any of the terms,
conditions or provisions of Crystal Water organizational documents or of any material agreement or
instrument to which Crystal Water is now a party or by which it is bound, or constitutes a default
(with due notice or the passage of time or both) under any of the foregoing, or results in the
creation or imposition of any prohibited lien, charge or encumbrance whatsoever upon any of the
property or assets of Crystal Water under the terms of any material instrument or agreement to
which Crystal Water is now a party or by which it is bound.



     (3) All certificates, approvals, permits and authorizations of applicable local governmental
agencies, the State of Connecticut and the federal government that are necessary (i) for the due
execution and delivery by Crystal Water of, and the performance by Crystal Water of its obligations
under, each Company Document and (ii) for the operation and use of the capital projects being
financed by the Bonds, in each case, have been obtained and continue in force, except, in the case
of clause (ii), for such certificates, approvals, permits and authorizations the failure of which
to obtain or to maintain in full force would not, individually or in the aggregate, materially and
adversely affect the financial condition, assets, properties or operation of Crystal Water.



     (4) No event has occurred and no condition exists that would constitute an Event of Default
under the Company Documents or to Crystal Water’s knowledge the Indenture or that, with the passing
of time or with the giving of notice or both would become such an Event of Default.



     (5) The Company Documents have been executed and delivered by Crystal Water and are the legal,
valid and binding obligations of Crystal Water, enforceable against Crystal Water in accordance
with its terms, subject to laws with respect to bankruptcy and general principals of equity.


(b) The Holding Company makes the following representations as the basis for its undertakings
herein contained:




     (1) The Holding Company is a Connecticut corporation organized and existing under the laws of
the State of Connecticut and has the power to enter into and has duly authorized, by proper action,
the execution and delivery of the Agreement, and the Guaranty Agreement;



     (2) Neither the execution and delivery of this Agreement or the Guaranty Agreement, the
consummation of the transactions contemplated hereby and thereby, nor the fulfillment of or
compliance with the terms and conditions hereof and thereof, conflicts with or results in a breach
of any of the terms, conditions or provisions of the Holding Company’s organizational documents or
of any material actions or of any material agreement or instrument to which the



-3-









 





EXHIBIT 4.32



Company is now a party or by which it is bound, or constitutes a default (with due notice or
the passage of time or both) under any of the foregoing, or results in the creation or imposition
of any prohibited lien, charge or encumbrance whatsoever upon any of the property or assets of the
Holding Company under the terms of any material instrument or agreement to which the Holding
Company is now a party or by which it is bound.




     (3) All certificates, approvals, permits and authorizations of applicable local governmental
agencies, the State of Connecticut and the federal government that are necessary for the due
execution and delivery by the Holding Company of, and the performance by the Holding Company of its
obligations under, this Agreement and the Guaranty Agreement have been obtained and continue in
force.



     (4) No event has occurred and no condition exists that to the knowledge of the Holding Company
would constitute an Event of Default (as defined in the Indenture, the Loan Agreement or hereunder)
or that, with the passing of time or with the giving of notice or both would become such an Event
of Default.



     (5) The Guaranty Agreement and this Agreement have been executed and delivered by the Holding
Company and are the legal, valid and binding obligations of the Holding Company, enforceable
against the Holding Company in accordance with its terms, subject to laws with respect to
bankruptcy and general principals of equity.


(c) Crystal Water and the Holding Company make the following representations as the basis for their
undertakings herein contained:




     (1) Except as disclosed in the Official Statement, dated November 16, 2005, delivered in
connection with the issuance of the Bonds, (i) there is no action, suit, proceeding or
investigation at law or in equity before or by any court or governmental agency or body pending or
to their knowledge threatened against or affecting Crystal Water or the Holding Company that seeks
to restrain or enjoin the issuance or delivery of the Bonds, or the collection of the payments to
be made pursuant to the Indenture, the Bonds, any Company Document, the Guaranty Agreement or in
any way contests or materially adversely affects the validity of the Bonds, the Indenture, any
Company Document, the Guaranty Agreement or the resolutions of Crystal Water or the Holding Company
relating to the Bonds, or contests or affects the powers of Crystal Water or the Holding Company to
enter into or perform its obligations or consummate the transactions contemplated under any of the
foregoing; and (ii) Crystal Water or the Holding Company are not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal, state, municipal or
other governmental authority.



     (2) The financial statements of the Holding Company and its consolidated subsidiaries as at
December 31, 2004 and September 30, 2005 contained in the Holding Company’s Annual Report on Form
10-K for the year ended December 31, 2004 as filed with the SEC on March 30, 2005 and Quarterly
Report on Form 10-Q for the quarter ended September 30, 2005 as filed with the SEC on November 9,
2005, respectively, present fairly in all material respects the financial condition, results of
operations and cash flows of the Holding Company and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis throughout the periods
involved (except as otherwise noted therein).



-4-









 





EXHIBIT 4.32



Since September 30, 2005, there has been no material adverse change in the financial
condition, assets, properties or operation of the Holding Company.




ARTICLE IV

COVENANTS




     SECTION 4.01. Consolidation, Merger and Transfer of Mortgaged Property.



     (a) Restructuring, Merger, Consolidation, Reorganization. Crystal Water (or any subsequent
obligor on the Note) shall not merge, consolidate, restructure or reorganize with an entity without
the prior written consent of FGIC, provided, however, Crystal Water (or any subsequent obligor on
the Note) may merge, consolidate, restructure or reorganize with an entity without the prior
written consent of FGIC either if (a) Crystal Water (or any subsequent obligor on the Note)
continues to exist after such merger, consolidation, restructuring or reorganization and (i)
Crystal Water (or any subsequent obligor on the Note) remains a public utility regulated by the
appropriate regulatory body, (ii) Crystal Water (or any subsequent obligor on the Note) remains
obligated to FGIC with respect to, and to make payments with respect to, the Bonds, the Note and
the Company Documents and (iii) the Guaranty Agreement remains enforceable against the Holding
Company or against an entity with a rating on its unenhanced long-term debt that is the same or
higher than the rating on the unenhanced long-term debt of the Holding Company or (b) Crystal Water
(or any subsequent obligor on the Note) is not the surviving entity after such merger,
consolidation, restructuring or reorganization and (i) the surviving entity is a public utility
regulated by the appropriate regulatory body, (ii) the surviving entity fully assumes all
obligations to FGIC with respect to, and to make payments with respect to the Bonds, the Note and
the Company Documents and (iii) the Guaranty Agreement remains enforceable against the Holding
Company or against an entity with a rating on its unenhanced long-term debt that is the same or
higher than the rating on the unenhanced long-term debt of the Holding Company. Notwithstanding
the foregoing, if as a result of the merger, consolidation, restructuring or reorganization of
Crystal Water (or any subsequent obligor on the Note) with an entity without the prior written
consent of FGIC, the unenhanced rating on the Bonds is lower than investment grade by any Rating
Agency then rating the Bonds or if any Rating Agency then rating the unenhanced Bonds ceases to
rate the unenhanced Bonds, all obligations to FGIC with respect to, and all payments under, the
Note and the Company Documents must be paid in full and the Bonds must be fully redeemed in
accordance with the Indenture.



     (b) Sale of Assets of Crystal Water. Crystal Water (or any subsequent obligor on the Note)
may sell or otherwise dispose of substantially all of the assets of Crystal Water (or any
subsequent obligor on the Note) without the prior written consent of FGIC if (i) the transferee of
such assets fully assumes all obligations under the Bonds, the Note and the Company Documents, (ii)
the transferee is a public utility regulated by the appropriate regulatory body, (iii) the Guaranty
Agreement remains enforceable against the Holding Company or an entity with a rating on its
unenhanced long-term debt that is the same or higher than the rating on the unenhanced long-term
debt of the Holding Company and (iv) the Bonds must have an unenhanced rating not lower than
investment grade by any Rating Agency then rating the unenhanced Bonds. If Crystal Water (or any
subsequent obligor on the Note) sells or otherwise disposes of substantially all of the assets of
Crystal Water (or any subsequent obligor on the Note) without the prior written consent of FGIC and
any of the conditions set forth in the



-5-









 





EXHIBIT 4.32



previous sentence have not be met, then all obligations to FGIC with respect to, and all
payments under, the Note and the Company Documents must be paid in full and the Bonds must be fully
redeemed in accordance with the Indenture.




     (c) Sale of Assets of Connecticut Water Company. If upon, and as a result of, the sale or
other disposition without the prior written consent of FGIC of an aggregate of 20% or more of the
assets of Connecticut Water Company (or of any successor to the interests of Connecticut Water
Company) based upon the historical book value of the assets sold as determined on the issuance date
of the Bonds, the unenhanced rating on the bonds of the Connecticut Water Company issued on the
same date as the Bonds is lower than investment grade by any Rating Agency then rating such bonds
or if any Rating Agency then rating the unenhanced bonds ceases to rate the unenhanced bonds, then
all obligations of Crystal Water to FGIC with respect to, and all payments under, the Note, the
Insurance Agreement and the Loan Agreement must be paid in full and the Bonds must be fully
redeemed in accordance with the Indenture.



     (d) Holding Company Restructuring, Merger, Consolidation, Reorganization or Sale of Assets.
The Holding Company shall not merge, consolidate, restructure or reorganize with an entity or sell
substantially all of its assets without the prior written consent of FGIC, provided, however, the
Holding Company may merge, consolidate, restructure or reorganize with an entity or sell
substantially all of its assets without the prior written consent of FGIC if (i) the obligor on the
Note remains an entity that is a public utility regulated by the appropriate regulatory body and
(ii) the Holding Company, any successor entity or the transferee of substantially all of the
Holding Company’s assets is obligated on the Insurance Agreement and the Guaranty Agreement.
Notwithstanding the foregoing, if the Holding Company merges, consolidates, restructures or
reorganizes with an entity or sells substantially all of its assets without the prior written
consent of FGIC and the unenhanced rating on the Bonds is lower than investment grade by any Rating
Agency then rating the Bonds or if any Rating Agency then rating the unenhanced Bonds ceases to
rate the unenhanced Bonds, all obligations to FGIC with respect to, and all payments under, the
Note and Loan Agreement must be paid in full and the Bonds must be fully redeemed in accordance
with the Indenture.



     (e) Upon the occurrence of an event specified in section 4.01 (a)(b)(c) or (d) Crystal Water
and the Holding Company shall deliver to FGIC a certificate of the president or any vice president
and an opinion of counsel acceptable to FGIC, each stating that such occurrence complies with this
Section 4.01.



     (f) Upon the occurrence of an event specified in section 4.01(a), (b) or (d), the successor
entity shall succeed to, and be substituted for, and may exercise every right and power under this
Agreement with the same effect as if such successor had been named herein, and thereafter, the
predecessor entity shall be relieved of all obligations and covenants hereunder.



     SECTION 4.02. Restrictions on Liens and Sale and Leaseback Transactions.




     (a) For so long as the Bonds are outstanding and FGIC has fully performed all of its
obligations under the Policy, Crystal Water will not, nor will it permit any Significant Subsidiary
to, (1) issue, incur, assume or permit to exist any Debt, if such Debt is secured by a Lien on any
Principal Property (whether such Principal Property is now owned or hereafter acquired), unless



-6-










 





EXHIBIT 4.32



the Company provides that the Bonds will be equally and ratably secured with such secured Debt
or (2) incur or permit to exist any Attributable Debt in respect of Principal Property; provided,
however, that the foregoing restriction shall not apply to:





     (i) to the extent Crystal Water or any Significant Subsidiary consolidates with, or
merges with or into, another entity, Liens on the property of such entity securing Debt in
existence on the date of such consolidation or merger, provided that such Debt and Liens
were not created or incurred in anticipation of such consolidation or merger and that such
Liens do not extend to cover any Principal Property;




     (ii) Liens existing on property hereafter acquired at the time of such acquisition, as
long as the Lien was not created or incurred in anticipation thereof and does not extend to
or cover any other Principal Property;




     (iii) Liens of any kind, including purchase money Liens, conditional sales agreements
or title retention agreements and similar agreements, upon any property acquired,
constructed, developed or improved by Crystal Water or any Significant Subsidiary (whether
alone or in association with others) which do not exceed the cost or value of the property
acquired, constructed, developed or improved and which are created prior to, at the time of,
or within 12 months after such acquisition (or in the case of property constructed,
developed or improved, within 12 months after the completion of such construction,
development or improvement and commencement of full commercial operation of such property,
whichever is later) to secure or provide for the payment of any part of the purchase price
or cost thereof; provided that the Liens shall not extend to any Principal Property other
than the property so acquired, constructed, developed or improved;




     (iv) Liens in favor of the United States, any state or any foreign country or any
department, agency or instrumentality or political subdivision of any such jurisdiction to
secure payments pursuant to any contract or statute or to secure any indebtedness incurred
for the purpose of financing all or any part of the purchase price or cost of constructing
or improving the property subject to such Lien, including Liens related to governmental
obligations the interest on which is tax-exempt under Section 103 of the Internal Revenue
Code or any successor section of the Internal Revenue Code;




     (v) Liens in favor of Crystal Water, the Holding Company or one or more Significant
Subsidiaries of the Crystal Water, the Holding Company, or one or more wholly-owned
Subsidiaries of Crystal Water or the Holding Company or any of the foregoing combination;
and




     (vi) replacements, extensions or renewals (or successive replacements, extensions or
renewals), in whole or in part, of any Lien, or of any agreement, referred to above in
clauses (i) through (v) inclusive, or replacements, extensions or renewals of the Debt
secured thereby (to the extent that the amount of Debt secured by any such Lien is not
increased from the amount originally so secured, plus any premium, interest, fee or expenses
payable in connection with any replacements, refundings, refinancings, remarketings,
extensions or renewals); provided that such replacement, extension or



-7-









 





EXHIBIT 4.32





renewal is limited to all or a part of the same property (plus improvements thereon or
additions or accessions thereto) that secured the Lien replaced, extended or renewed.



     (b) Notwithstanding the restriction in subsection (a) of this Section 4.02, Crystal Water or
any Significant Subsidiary may (1) issue, incur or assume Debt secured by a Lien not described in
clauses (i) through (vi) of subsection (a) above on any Principal Property now or hereafter owned
without providing that the Bonds be equally and ratably secured with such Debt and (2) issue or
permit to exist Attributable Debt in respect of Principal Property, in either case so long as the
aggregate amount of such secured Debt and Attributable Debt, together with the aggregate amount of
all other Debt secured by Liens not described in clauses (i) through (vi) of subsection (a) above
then outstanding and all other Attributable Debt, does not exceed 10% of the Net Tangible Assets of
Crystal Water, as determined by Crystal Water as of a month end not more than 90 days prior to the
closing or consummation of the proposed transaction.



     (c) For purposes of determining compliance with this Section 4.02, in the event that any Lien
at any time meets the criteria of more than one of the categories described in clauses (i) through
(vi) above of Section 4.02(a), or is entitled to be created pursuant to Section 4.02(b), Crystal
Water will be permitted to classify (and later reclassify) in whole or in part in its sole
discretion such Lien in any manner that complies with this Section 4.02.



     (d) For purposes of determining compliance with any Dollar-denominated restriction on the
incurrence of Debt secured by Liens on Principal Property, the Dollar-equivalent principal amount
of Debt denominated in a foreign currency will be calculated based on the relevant currency
exchange rate in effect on the date such Debt was incurred, in the case of term Debt, or first
committed, in the case of revolving credit Debt; provided that if such Debt is incurred to
refinance other Debt denominated in the same foreign currency, and such refinancing would cause the
applicable Dollar-denominated restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, the Dollar-denominated restriction will be
deemed not to have been exceeded so long as the principal amount of the refinancing Debt does not
exceed the principal amount of the Debt being refinanced. Notwithstanding any other provision of
this Section 4.02, the maximum amount of Debt secured by Liens on Principal Property that Crystal
Water or any Significant Subsidiary may incur pursuant to this covenant will not be deemed to be
exceeded solely as a result of fluctuations in the exchange rate of currencies.



     (e) Except as provided in Section 4.02 hereof, while there are any Bonds Outstanding or any
reimbursement obligations owed to FGIC, without the prior written consent of Financial Guaranty,
Crystal Water will not permit, create, assume or suffer to be created or to exist any mortgage,
lien, security interest, or encumbrance of any kind, upon, or pledge of, any of Crystal Water’s
properties of any character, including real, personal, tangible and intangible properties and
revenues, now owned or hereafter acquired, to secure any indebtedness without providing that the
Bonds and the reimbursement obligations hereunder have the same security.



     SECTION 4.03. Liquidity Facility. If at any time the Bonds are converted into a mode, other
than a long-term mode longer than five years or an auction mode, Crystal Water shall provide a
Liquidity Facility to support the Bonds. The Liquidity Facility and the Liquidity



-8-









 





EXHIBIT 4.32



Provider shall satisfy the terms set forth in Annex B hereto or shall otherwise be subject to
the prior written approval of FGIC.




     SECTION 4.04. Covenant Merger. Notwithstanding anything in the foregoing covenants to the
contrary, the foregoing covenants with respect to the Crystal Water Company Bonds shall no longer
be applicable if Crystal Water is merged into, consolidated with or otherwise reorganized into the
Connecticut Water Company. The covenants with respect to the Connecticut Water Company shall apply
to the merged, consolidated or otherwise reorganized entity.



ARTICLE V

EVENTS OF DEFAULT; REMEDIES




     SECTION 5.01. Events of Default. The following events shall constitute Events of Default
hereunder:



     (a) Crystal Water or the Holding Company shall fail to pay to FGIC any amount payable under
Section 2.02 or 7.01 hereof and such failure shall have continued for a period in excess of ten
days after receipt by Crystal Water or the Holding Company of written notice thereof;



     (b) Any representation or warranty made by Crystal Water or the Holding Company hereunder
under any other Company Document, the Guaranty Agreement, or any statement in the application for
the Policy or any written report, certificate, financial statement or other instrument provided in
connection with the Commitment, the Policy, the Guaranty Agreement, or any Company Document shall
have been materially false at the time when made;



     (c) Except as otherwise provided in this Section 5.01, Crystal Water or the Holding Company
shall fail to perform any of its other obligations hereunder, provided that such failure continues
for more than thirty days after receipt by Crystal Water or the Holding Company of written notice
of such failure to perform;



     (d) Crystal Water or the Holding Company shall (i) voluntarily commence any proceeding or file
any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or
foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to
controvert in a timely and appropriate manner, any such proceeding or the filing of any such
petition, (iii) apply for or consent to the appointment of a receiver, paying agent, custodian,
sequestrator or similar official for Crystal Water or the Holding Company or for a substantial part
of its property, (iv) file an answer admitting the material allegations of a petition filed against
it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi)
become unable, admit in writing its inability or fail generally to pay its debts as they become
due; or



     (e) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in
a court of competent jurisdiction seeking (i) relief in respect of Crystal Water or the



-9-









 





EXHIBIT 4.32



Holding Company, or of a substantial part of its property, under the United States Bankruptcy
Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the
appointment of a receiver, paying agent, custodian, sequestrator or similar official for Crystal
Water or the Holding Company or for a substantial part of its property; and such proceeding or
petition shall continue undismissed for forty-five (45) days or an order or decree approving or
ordering any of the foregoing shall continue unstayed and in effect for thirty (30) days.




     SECTION 5.02. Remedies. If an Event of Default shall occur and be continuing, then FGIC may
take whatever action at law or in equity may appear necessary or desirable, including, without
limitation, legal action for the specific performance of any covenant made by Crystal Water or the
Holding Company herein and any financing document and, to the extent applicable, the pursuit of
remedies available under the Bonds, the Company Documents and the Guaranty Agreement to collect the
amounts then due under this Agreement, or to enforce performance and observance of any obligation,
agreement or covenant of Crystal Water or the Holding Company under the Bonds, Company Documents
and the Guaranty Agreement. All rights and remedies of FGIC under this Section 5.02 are cumulative
and the exercise of any one remedy does not preclude the exercise of one or more of the other
available remedies under the Bonds, the Company Documents, the Indenture and the Guaranty
Agreement, or now or hereafter existing at law or in equity. No delay or omission to exercise any
right or power accruing under the Bonds, the Company Documents, the Indenture, the Guaranty
Agreement, or any other financing document, or otherwise, upon the happening of any event set forth
in Section 5.01, shall impair any such right or power or shall be construed to be a waiver thereof,
but any such right and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle FGIC to exercise any remedy reserved to FGIC in this Article, it
shall not be necessary to give any notice, other than such notice as may be required by this
Article.



ARTICLE VI

SETTLEMENT




     Financial Guaranty shall have the exclusive right to decide and determine whether any claim,
liability, suit or judgment made or brought against Financial Guaranty on the Policy (a “Policy
Claim”), shall or shall not be paid, compromised, resisted, defended, tried or appealed, and
Financial Guaranty’s decision thereon, if made in good faith, shall be final and binding upon
Crystal Water and the Holding Company. An itemized statement of payments made by Financial
Guaranty, certified by an officer of Financial Guaranty, or the voucher or vouchers for such
payments, shall be prima facie evidence of the liability of Crystal Water and the Holding Company.



ARTICLE VII

MISCELLANEOUS




     SECTION 7.01. Reimbursement of Costs and Expenses; Payments Generally.



     (a) Crystal Water and the Holding Company shall pay or reimburse FGIC for any and all charges,
fees, costs, and expenses (including reasonable attorney’s fees) that FGIC may reasonably pay or
incur in connection with the following: (i) the administration, enforcement, defense, or
preservation of any rights or security hereunder or under any other transaction



-10-









 





EXHIBIT 4.32



document; (ii) the pursuit of any remedies hereunder, under any other transaction document, or
otherwise afforded by law or equity, (iii) any amendment, waiver, or other action hereunder or with
respect to or related to any transaction document whether or not executed or completed; (iv) the
violation by Crystal Water and the Holding Company of any law, rule, or regulation or any judgment,
order or decree applicable to it; (v) any advances or payments made by FGIC to cure defaults of
Crystal Water and the Holding Company under the transaction documents; or (vi) any litigation or
other dispute in connection with this Agreement or any other transaction document, or the
transactions contemplated hereby or thereby, other than amounts resulting from the failure of the
FGIC to honor its payment obligations under the Policy. FGIC reserves the right to charge a
reasonable fee as a condition to executing any amendment, waiver, or consent proposed in respect of
any transaction document. The obligations of Crystal Water and the Holding Company to FGIC shall
survive discharge and termination of the transaction documents. Crystal Water and the Holding
Company’s obligations under this Section 7.01 shall be unconditional and shall be paid promptly
upon receipt by the Company of demand therefor.




     (b) If any payment hereunder is specified to be made on a date that is not a Business Day,
then such payment shall be made on the Business Day next succeeding the date originally specified
for such payment.



     SECTION 7.02. Indemnification; Limitation of Liability.



     (a) In addition to any and all rights of indemnification or any other rights of FGIC pursuant
hereto or under law or equity or under any financing document, Crystal Water and the Holding
Company and any successors thereto agree to pay, and to protect, indemnify and save harmless, FGIC
and its officers, directors, shareholders, employees, and agents, from and against any and all
claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages,
costs or reasonable expenses, including, without limitation, reasonable fees and expenses of
attorneys, consultants and auditors and reasonable costs of investigations or obligations
whatsoever paid by FGIC (herein collectively referred to as “Liabilities”) of any nature arising
out of or relating to the transactions contemplated by the financing documents by reason of:




     (i) any untrue statement or alleged untrue statement of a material fact contained in
the offering document or in any amendment or supplement thereto or arising out of or based
upon any omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except insofar as such
Liabilities arise out of or are based upon any such untrue statement or omission or
allegation thereof based upon information which describes FGIC in the offering document set
forth under the caption “Bond Insurance”, or in the financial statements of FGIC, including
any information in any amendment or supplement to the offering document furnished by FGIC in
writing expressly for use therein that amends or supplements such information;




     (ii) to the extent not covered by clause (i) above, any act or omission of Crystal
Water and the Holding Company in connection with the offering, issuance, sale or delivery of
the Bonds other than by reason of false or misleading information provided



-11-









 





EXHIBIT 4.32





by FGIC in writing for inclusion in the offering document as specified in clause (i)
above or the allegation thereof;




     (iii) the misfeasance or malfeasance of, or negligence or theft committed by, any
director, officer, employee or agent of any of Crystal Water and the Holding Company; and




     (iv) any claim by any party other than the parties to be indemnified under this Section
7.02 arising out of any Event of Default under the Company Documents.



     (b) This indemnity provision shall survive the termination of this Agreement and shall survive
until the statute of limitations has run on any causes of action which arise from one of these
reasons and until all suits filed as a result thereof have been finally concluded. Any party which
proposes to assert the right to be indemnified under this Section 7.02 will promptly after receipt
of notice of commencement of any action, suit or proceeding against such party in respect of which
a claim is to be made against Crystal Water and the Holding Company under this Section 7.02, shall
notify Crystal Water and the Holding Company of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served. In case any action, suit or proceeding shall be
brought against any indemnified party and it shall notify Crystal Water and the Holding Company of
the commencement thereof, Crystal Water and the Holding Company shall be entitled to participate
in, and, to the extent that it shall wish, to assume the defense thereof, with counsel satisfactory
to such indemnified party, and after notice from Crystal Water and the Holding Company to such
indemnified party of its election so to assume the defense thereof, Crystal Water and the Holding
Company shall not be liable to such indemnified party for any legal expenses other than reasonable
costs of investigation subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ its counsel in any such
action the defense of which is assumed by Crystal Water and the Holding Company in accordance with
the terms of this subsection (b), but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless the employment of counsel by such indemnified party has been
authorized by Crystal Water and the Holding Company, or unless there is a conflict of interest.
Crystal Water and the Holding Company shall not under any circumstances be liable for any
settlement of any action or claim effected without its prior written consent.



     SECTION 7.03. Exercise of Rights. No failure or delay on the part of FGIC to exercise any
right, power or privilege under this Agreement and no course of dealing between FGIC Crystal Water
and the Holding Company or any other party shall operate as a waiver of any such right, power or
privilege, nor shall any single or partial exercise of any such right, power or privilege preclude
any other or further exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein expressly provided are cumulative and not exclusive of any rights or
remedies which FGIC would otherwise have pursuant to law or equity. No notice to or demand on any
party in any case shall entitle such party to any other or further notice or demand in similar or
other circumstances, or constitute a waiver of the right of the other party to any other or further
action in any circumstances without notice or demand.



-12-









 





EXHIBIT 4.32




     SECTION 7.04. Amendment and Waiver. Any provision of this Agreement may be amended, waived,
supplemented, discharged or terminated only with the prior written consent of Crystal Water, the
Holding Company and FGIC. Crystal Water and the Holding Company hereby agree that upon the written
request of the Trustee, Financial Guaranty may make or consent to issue any substitute for the
Policy to cure any ambiguity or formal defect or omission in such Policy which does not materially
change the terms of such Policy or adversely affect the rights of the Holders, and this Agreement
shall apply to such substituted Policy. Financial Guaranty agrees to deliver to Crystal Water and
the Holding Company and to the company or companies, if any, rating the Bonds, a copy of such
substituted Policy.



     SECTION 7.05. Payments. The payments due by Crystal Water under the Note and the Loan
Agreement shall be structured such that moneys are deposited with the Bond Trustee five days in
advance of debt service payments on the Bonds Insured.



     SECTION 7.06. Successors and Assigns; Descriptive Headings.



     (a) This Agreement shall bind, and the benefits thereof shall inure to, Crystal Water and the
Holding Company and FGIC and their respective successors and assigns, so long as any Indenture is
in full force and effect. Except pursuant to an event specified in Article IV herein, neither
Crystal Water, the Holding Company nor FGIC may transfer or assign any or all of its rights and
obligations hereunder without the prior written consent of the other party hereto and any such
transfer or assignment without such written consent shall be void.



     (b) The descriptive headings of the various provisions of this Agreement are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.



     SECTION 7.07. Waiver. Crystal Water and the Holding Company waives any defense that this
Agreement was executed subsequent to the date of the Policy, admitting and covenanting that such
Policy was executed pursuant to Crystal Water and the Holding Company’s request and in reliance on
Crystal Water and the Holding Company’s promise to execute this Agreement.



     SECTION 7.08. Entire Agreement. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes any and all prior
agreements and understandings of the parties hereto with respect to the subject matter hereof,
including but not limited to the Commitment.



     SECTION 7.09. Notices, Requests, Demands. Except as otherwise expressly provided herein, all
written notices, requests, demands or other communications to or upon the respective parties hereto
shall be deemed to have been given or made when actually received, or in the case of telecopier
notice sent over a telecopier machine owned or operated by a party hereto, when sent, with
confirmation of receipt, addressed as specified below or at such other address as either of the
parties hereto may hereafter specify in writing to the other:


If to the Company:



The Crystal Water Company of Danielson




-13-









 





EXHIBIT 4.32



93 West Main Street

Clinton, Connecticut 06413

Attention: Vice President – Finance

and Chief Financial Officer

Fax No.: 860-669-9326



If to the Holding Company:



Connecticut Water Service Inc.

93 West Main Street

Clinton, Connecticut 06413

Attention: Vice President – Finance

and Chief Financial Officer

Fax No.: 860-669-9326



If to FGIC:



Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

Attention: Manager, Global Utilities

Fax No.: 212-312-3093




     SECTION 7.10. Survival of Representations and Warranties. All representations, warranties
and obligations contained herein shall survive the execution and delivery of this Agreement and the
Policy.



     SECTION 7.11. Governing Law. This Agreement and the rights and obligations of the parties
under this Agreement shall be governed by and construed and interpreted in accordance with the laws
of the State of New York.



     SECTION 7.12. Counterparts. This Agreement may be executed in any number of copies and by
the different parties hereto on the same or separate counterparts, each of which shall be deemed to
be an original instrument. Complete counterparts of this Agreement shall be lodged with Crystal
Water, the Holding Company and FGIC.



     SECTION 7.13. Severability. In the event any provision of this Agreement shall be held
invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate
or render unenforceable any other provision hereof.



     SECTION 7.14. Parties Interested Herein. Nothing in this Agreement expressed or implied is
intended or shall be construed to confer upon, or to give or grant to, any person or entity, other
than Crystal Water and the Holding Company and Financial Guaranty, any right, remedy or claim under
or by reason of this Agreement or any covenant, condition or stipulation hereof, and all covenants,
stipulations, promises and agreements in this Agreement contained by and on behalf of Crystal Water
and the Holding Company shall be for the sole and exclusive benefit of Crystal Water and the
Holding Company and Financial Guaranty.



-14-









 





EXHIBIT 4.32




     SECTION 7.15. Term. This Agreement shall expire upon the later of (i) the expiration of the
Policy in accordance with the terms thereof, or (ii) the repayment in full to Financial Guaranty of
any amounts due and owing to it by the Company under this Agreement or the Policy.



-15-









 





EXHIBIT 4.32




     IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to
be duly executed and delivered as of the date first above written.




	 	 	 	 	 	 	 
	 	 	THE CRYSTAL WATER COMPANY OF DANIELSON	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David C. Benoit
 

	 	 
	 

	 	 	 	David C. Benoit	 	 
	 

	 	 	 	Vice President – Finance and Chief Financial
Officer	 	 
	 
	 	 	 	 	 	 
	 	 	CONNECTICUT WATER SERVICE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David C. Benoit
 

	 	 
	 

	 	 	 	Daniel C. Benoit	 	 
	 

	 	 	 	Vice President – Finance and Chief Financial
Officer	 	 
	 
	 	 	 	 	 	 
	 	 	FINANCIAL GUARANTY INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Paul R. Morrison
 

Paul R. Morrison
	 	 
	 

	 	 	 	Managing Director, International and Global
Utilities	 	 







-16-









 








EXHIBIT 4.32




ANNEX A

DEFINITIONS




     For all purposes of this Agreement, except as otherwise expressly provided herein or unless
the context otherwise requires, all capitalized terms used herein and not otherwise defined shall
have the same meaning as in the Indenture, and all other capitalized terms shall have the meaning
as set out below.



     “Agreement” means this Insurance Agreement.



     “Attributable Debt” in respect of a sale and leaseback transaction means, at the time of
determination, the present value of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction, including any period
for which such lease has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of interest implicit in
such transaction, determined in accordance with generally accepted accounting principles.



     “Bonds” has the meaning set forth in the first recital of this Agreement.



     “Commitment” means that certain letter, dated March 17, 2005 as amended on October 5, 2005 and
on November 18, 2005, between Crystal Water, the Holding Company and FGIC.



     “Company Documents” has the meaning set forth in Article III(a).



     “Debt” means (A) indebtedness of Crystal Water or a Significant Subsidiary for borrowed money
evidenced by a bond, debenture, note or other written instrument or agreement by which Crystal
Water or a Significant Subsidiary is obligated to repay such borrowed money and (B) any guaranty by
Crystal Water or a Significant Subsidiary of any such indebtedness of another Significant
Subsidiary. “Debt” does not include, among other things, (w) indebtedness of Crystal Water or a
Significant Subsidiary under any installment sale or conditional sale agreement or any other
agreement relating to indebtedness for the deferred purchase price of property or services, or (x)
any trade obligation (including obligations under power or other commodity purchase agreements and
any hedges or derivatives associated therewith), or other obligations of Crystal Water or a
Significant Subsidiary in the ordinary course of business, (y) obligations of Crystal Water or a
Significant Subsidiary under any lease agreement (including any lease intended as security),
whether or not such obligations are required to be capitalized on the balance sheet of Crystal
Water or a Significant Subsidiary under generally accepted accounting principles.



     “Dollar” or “$” means a dollar or other equivalent unit in such coin or currency of the United
States of America as at the time shall be legal tender for the payment of public and private debts.



     “Effective Interest Rate” means the lesser of the (i) the prime rate announced from time to
time by Citibank, N.A., or (ii) the maximum rate of interest permitted by then applicable law.



     “Event of Default” shall mean the events of default set forth in Section 5.01 of this
Agreement.



A-1









 





EXHIBIT 4.32




     “Holder” or “Holders” means the Person in whose name a Bond is registered on the books kept
and maintained by the Trustee for registration and transfer of the Bonds.



     “Indenture” has the meaning set forth in the first recital of this Agreement.



     “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or any successor
federal statute.



     “Lien” means any mortgage, deed of trust, pledge, security interest, encumbrance, easement,
lease, reservation, restriction, servitude, charge or similar right and any other lien of any kind,
including, without limitation, any conditional sale or other title retention agreement, any lease
in the nature thereof, and any defect, irregularity, exception or limitation in record title or,
when the context so requires, any lien, claim or interest arising from any of the foregoing.



     “Loan Agreement” has the meaning set forth in the second recital of this Agreement.



     “Net Tangible Assets” means the total amount of Crystal Water’s assets determined on a
consolidated basis in accordance with generally accepted accounting principles as of a date
determined pursuant to Section 4.02, less (i) the sum of Crystal Water’s consolidated current
liabilities determined in accordance with generally accepted accounting principles, and (ii) the
amount of Crystal Water’s consolidated assets classified as intangible assets, determined in
accordance with generally accepted accounting principles, including, but not limited to, such items
as goodwill, trademarks, trade names, patents, and unamortized debt discount and expense and
regulatory assets carried as an asset on Crystal Water’s consolidated balance sheet.



     “Policy Claim” has the meaning set forth in Article VI.



     “Policy Payment” means any payment by FGIC pursuant to the terms of the Policy.



     “Premium” means the premium described in the Commitment and payable by Crystal Water to FGIC
pursuant to Section 2.01 hereof.



     “Principal Property” means any property of Crystal Water or any Significant Subsidiary.



     “Significant Subsidiary” shall have the meaning specified in Rule 1-02(w) of Regulation S-X
under the Securities Act of 1933, as amended.




A-2









 








EXHIBIT 4.32




ANNEX B




LIQUIDITY FACILITY REQUIREMENTS





	1.	 	Liquidity Provider Credit Ratings: The provider (the “Provider”) of a liquidity facility
(the “Facility”) to be used to pay the purchase price of tendered variable rate bonds (the
“Bonds”) shall be rated by both Moody’s Investors Service (“Moody’s”) and Standard & Poor’s
Ratings Services (“S&P”), and shall be of sufficient strength to cause the short-term ratings
for the Bond issue to be A-1+ by S&P and VMIG-1 by Moody’s. Financial Guaranty will not
deliver its bond insurance policy (the “Policy”) until such rating or ratings have been
released. Any Provider whose long-term rating drops below A- (S&P) or A3 (Moody’s) shall be
replaced at the request of Financial Guaranty.






	2.	 	Initial Term of Facility: Minimum initial term of 364 days is acceptable so long as the
notice of non-renewal (Section 9 hereof) provides adequate time for the Issuer to find a
substitute facility and the authorizing document mechanics in the event of non-renewal provide
for the Bonds to be tendered and the Facility to be drawn upon before expiration of the
Facility.






	3.	 	Renewals and Amendments: Any renewal on terms not identical to the terms of the initial (or
then renewing) Facility, or with a different Provider, shall be subject to the prior written
consent of Financial Guaranty. Financial Guaranty shall be provided with notice (and a copy)
of all Facility renewals, amendments and supplements.






	4.	 	(a) Immediate Termination Events. Upon the occurrence of only the following events, the
Provider may terminate the Facility prior to the stated expiration date thereof without
offering Bondholders one last opportunity to tender the Bonds to the Provider for purchase:






	 	(i)	 	Policy Default. Failure by Financial Guaranty to pay
principal and interest when, as and in the amounts required under the Policy,
including interest at the “bank rate” due the Provider on disbursements under
the Facility if such amount is included as interest on the Bonds under the
terms of the Bonds;
	 
	 	(ii)	 	Payment Default Under Other Insurance. Any default by
Financial Guaranty in making payment when, as and in the amounts required to be
made pursuant to the express terms and provisions of any other municipal bond
insurance policy or surety bond issued by Financial Guaranty;
	 
	 	(iii)	 	Nullity of Policy. The Policy for any reason ceases
to be in full force and effect or is declared by a court of competent
jurisdiction to be null and void, or Financial Guaranty denies that it has any
further liability under the terms thereof; or
	 
	 	(iv)	 	Insolvency Proceeding Against Financial Guaranty. A
proceeding has been instituted in a court having jurisdiction in the premises
seeking an





B-1









 





EXHIBIT 4.32





order for relief, rehabilitation, reorganization, conservation, liquidation
or dissolution in respect of Financial Guaranty under the Insurance Law of
the State of New York or any successor provision thereto and such proceeding
is not terminated for a period of 60 consecutive days or such court enters
an order granting the relief sought in such proceeding.




	 	(b)	 	Termination Event Requiring “One Last Put” Opportunity. Upon the occurrence of
only the following events, the Provider may terminate the Facility prior to the stated
expiration date thereof but must provide Bondholders with one last opportunity to
tender their Bonds to the Provider for purchase prior to termination:






	 	(i)	 	The financial strength rating assigned to Financial Guaranty or
the rating assigned to securities insured by Financial Guaranty, as applicable,
is withdrawn, suspended or reduced to A, A2 or A, or below by any two of S&P,
Moody’s or Fitch, respectively.
	 
	 	(ii)	 	Failure of the Issuer to pay the Provider commitment fees for the Facility.






	 	(c)	 	No Other Termination Events. The only events permitting termination of the
Facility by the Provider prior to its stated expiration date are as specified in 4(a)
and 4(b) above. In particular, neither failure by the issuer to comply with any
covenants made by it in the Facility nor breach by the issuer of any representation or
warranty made by it in the Facility nor continuation of such failure or breach
following receipt by the issuer of notice thereof is a permissible event of
termination. The sole remedy allowed to the Provider upon such an event of default
shall be the ability to sue for specific performance.
	 
	 	(d)	 	Events Permitting Acceleration. Upon the occurrence of an event described in
4(a), the Provider may tender its Bonds to the issuer for immediate repurchase, and no
limitations shall be imposed on the exercise by the Provider of any remedies available
to it against the issuer (e.g., causing the issuer to accelerate its loan to the
ultimate borrower of Bond proceeds) should the issuer default on any such repurchase
obligation to the Provider.






	5.	 	Conditions to Effectiveness of Facility:






	 	(a)	 	As a condition to closing, Financial Guaranty may be required to provide its
customary enforceability and disclosure opinion with respect to the Policy.
	 
	 	(b)	 	As a condition to the issuance of the Policy, an opinion of counsel to the
Provider (including a separate opinion of foreign counsel in the case of a U.S. branch
of a foreign bank) regarding corporate matters, validity, enforceability and such other
matters as Financial Guaranty shall require, shall be addressed to (or shall be the
subject of a reliance letter addressed to) Financial Guaranty.










B-2









 











EXHIBIT 4.32





	6.	 	Form of Liquidity Facility: Either a letter of credit or a standby bond purchase
agreement shall be acceptable.






	7.	 	Parity Payments: (Applicable for revenue bond issues) The Facility shall provide that only
the following amounts are payable on a parity with principal of and interest on the Bonds: (i)
the Provider’s periodic commitment fee and (ii) interest on the Bonds held by the Provider
calculated at the “provider rate.” All other amounts (e.g., “increased obligation of the
debtor enforceable in accordance with its terms costs,” uninsured “claw-back” amount, penalty
interest charges and indemnification amounts) shall be payable on a subordinated basis to
payment of principal and interest on the Bonds, replenishment of any debt service reserve fund
and payment of the fees of the trustee or paying agent for the Bonds (herein, the “Trustee”),
and both the Facility and the authorizing document for the Bonds shall specifically so
provide.






	8.	 	Increased Costs: Any “increased costs” payable by the issuer pursuant to the Facility shall
be subordinated to the payment of principal and interest on the Bonds, replenishment of any
debt service reserve fund and payment of the fees of the Trustee, and the Facility shall
expressly so provide. The Facility shall limit “increased costs” to increases in costs to the
Provider or any participant of its obligations under the Facility as the result of the
imposition, increase or applicability of any reserve, special deposit, capital adequacy or
similar requirement against the obligations of the Provider or any participant under the
Facility (other than as a result of the acts, omissions or financial condition of the Provider
or such participant) due to any change in any law or regulation or in the interpretation
thereof by any court or administrative or governmental authority charged with the
administration thereof.






	9.	 	Notice of Non-Renewal: The Provider shall be required to give not less than 30 days’ notice
to the Trustee and Financial Guaranty before the Trustee under the authorizing document is
required to give Bondholders notification to tender Bonds as a result of a non-renewal
(“Non-Renewal Mandatory Tender”). (If the Trustee is required to send out a Mandatory Tender
Notice 30 days prior to the Facility termination, the Provider will be required to give the
Trustee notice of non-renewal 60 days prior to the expiration date of the Facility of its
intention not to renew or extend the Facility.) Early termination pursuant to paragraph 4(b)
above requires the same timing notification as described above. Early termination pursuant to
paragraph 4(a) above requires no prior notice.






	10.	 	Certain Mandatory Conversions to Fixed Rate: The Trustee shall commence the process required
by the authorizing document to effect a mandatory conversion of the interest rate on the Bonds
to a fixed rate (sufficient to accomplish the complete remarketing at par of all Bonds then
held by the Provider) on or as soon as practicable after the termination date of the Facility,
in the case of a termination pursuant to paragraph 4(a) or 4(b) and a Non-Renewal Mandatory
Tender:






If such a remarketing cannot be effected, the Bonds shall continue to bear interest at the
variable rate and the remarketing agent shall attempt at least weekly to convert the Bonds
to a fixed interest rate sufficient to effect the remarketing at par of all Bonds then held
by the Provider.



B-3









 





EXHIBIT 4.32





	11.	 	Holding Periods: For amortization periods of less than 5 years, no amortization shall be
permitted prior to the first anniversary of the date the tendered Bonds are purchased by the
Provider. For amortization periods of 5 years or more, no amortization shall be permitted
prior to 6 months from the date the tendered Bonds are purchased by the Provider. Whether
during the term of the Facility or subsequent to the termination thereof, the Provider shall
not be permitted to tender unremarketed Bonds to the issuer and shall be required to hold such
Bonds for the periods and in accordance with the conditions set forth above (except that no
holding period is required in the event of a termination of the Facility pursuant to 4(a)
hereof). Financial Guaranty shall pay only principal and interest on the Bonds as scheduled,
in accordance with the terms of the Policy, unless Financial Guaranty has provided, at the
request of the Provider, an endorsement to its Policy to cover a special mandatory redemption
under the authorizing document.






	12.	 	Maximum Rates: The maximum rate payable for any interest payment period on the Bonds,
whether or not held by or pledged to the Provider at such time, shall be the lesser of 10%
per annum and the maximum rate permitted by applicable law (the “Cap Rate”).





B-4